The 45th Day TIC

As children, the days seemed to last so much longer.  So much could be packed into a single 24 hour period.   Summer break would begin and we thought there was no way to fill each day, but come August, we couldn’t believe that summer had already come and gone.  It went too fast!  Now, it seems that a month goes by and it feels like only a single week has passed.  All too often we feel like we have much more time than what we really have, and with a busy schedule, it’s easy to lose track of time and then find ourselves wishing we had just a little more.

As those of you familiar with Section 1031 exchanges probably (should) know, once you close the sale of your relinquished property and your proceeds go into a Qualified Intermediaries account, the clock begins ticking.  You cannot pause the clock, or wind it back, or start over.  You have begun your Identification period and you must play by the rules or you will be unable to complete a valid 1031 Exchange.   Very few extensions are available, most are granted only by the President of the United States.  These extensions are generally granted due to a disaster of some sort and are typically reserved for a select group of people in a specific geographical area.   These are rare and, the odds are, you will not be given an extension, especially if you just can’t quite find the property you are looking for, or if you’ve waited too long because the one you really want is not quite ready.  The IRS and the Qualified Intermediaries are very strict about the 45 day time period and expect you to be savvy enough to work within those guidelines.

What if, then, you find yourself in one of these situations, which so many so often do:

You’ve found a property you want and will identify, but you’re not sure if the deal will close.

You’ve identified two properties that are likely to close and you still have an available ID.

You’ve lost track of time, it’s Friday morning on day 43, and you need to identify something but don’t know what to pick.

You want to identify a property that isn’t available quite yet, but you’ve been told there should be no problem closing on it within your 180 days.

The property you want doesn’t cover your entire cash/debt requirement and you have a small amount remaining to exchange.

During my many years of experience in the TIC industry, I have talked with several 1031 Exchange buyers that were unsuccessful in completing their exchange because the properties they identified became unavailable to them, in one form or another.  The replacement properties they had planned on purchasing didn’t work out as planned typically because of a few common reasons:  final documentation revealed the deal wasn’t exactly what it appeared to be, an appraisal proved the property’s value was less than anticipated, seller changed his/her mind, financing couldn’t be arranged in time, etc.  The list goes on and on, and unfortunately it was too late and they were looking at a substantial tax bill.  If only they had identified a TIC income property as their replacement!

The success stories I spend my time working on are those of the buyers that were in your exact situation, but acted so differently than those I’ve just mentioned.  Instead of identifying a single property and hoping for the best, they also identified one or more quality TIC properties and effectively used each remaining ID they had.  For many of those individuals, their first choice fell through, but because they selected one or more TIC properties for their exchange, their exchanges were saved and they now enjoy the cashflow, convenience and all of the other benefits that come from owning a TIC property.  In fact, several 1031 exchangors have used all of their ID’s on TICs because of how available they are and how confident they feel that they will be successful in completing their exchange into a TIC property.  For many, loading their ID document with TICs provides a sense of surety, a sleep-at-night comfort level, that they will close, they will defer taxes, and they will establish a healthy flow of hassle-free income.

How do you know which TIC to identify?  There certainly are several options, and that’s the beauty of it!  You have several options to pick from that will give you the cashflow you want, a potentially nicer asset than you could buy on your own, and the ease of ownership and lifestyle change that you won’t find as a landlord.  The benefit of identifying a TIC is that there are multiple positions available so you have a greater chance of going into that property should the other one fall through.  You just want to make sure there is sufficient equity available and that you are satisfied with the quality and characteristics of the property.  Remember, when the 45^th day is over, you can no longer alter your ID statement and you must close on something on that piece of paper in the files of the Qualified Intermediary holding your exchange funds.

Experience is the best teacher, and we’ve all been students at one point in time.  Just like summer break seemed like such a long time and you didn’t know how you could fill every day with activities, the days go by and without warning, time’s up!  I can’t emphasize to you enough that even if your relinquished property is seemingly the most bulletproof deal out there and nothing could go wrong, you would be wise to ID a TIC, as it just might save your exchange.